PITTSBURGH State department rules city is financially distressed

The mayor has said the city must stop relying on property taxes.
PITTSBURGH (AP) -- The state ruled Monday that Pittsburgh is financially distressed, a designation that will give the city a state-appointed recovery coordinator within 30 days and an economic recovery plan within four months.
The designation by the Pennsylvania Department of Community and Economic Development was expected since a consultant hired by the state said earlier this month the city likely met the criteria under what is known as Act 47.
To be declared distressed, cities must meet at least one criterion under the act. Pittsburgh, which has a projected $42 million deficit for next year, meets three: the city's spending exceeded revenues for at least three years; had a 5 percent deficit for two successive years; and had at least a 1 percent deficit for three years.
"Act 47 is not a state takeover," Community and Economic Development Secretary Dennis Yablonsky said in a statement Monday. "The state's role is to provide strong oversight and develop a partnership with the city in order to ensure that residents receive vital services."
Empowered to levy taxes
Mayor Tom Murphy had asked for the designation, which could empower the city to levy some new taxes on its own rather than getting state approval before doing so.
"As we have been saying throughout this process ... the DCED declaration is a decisive determination that this city simply cannot cut its way to solvency," Murphy said in a statement. "We will continue to work in good faith to develop the modernized tax structure that this city must have to survive and grow."
Murphy declined to comment beyond the one-page statement.
Murphy has said the city must stop relying on property taxes as a primary source of revenue because of the city's changing business face. The city's major steel mills -- once a primary source of property tax revenue -- are gone, and the city economy is now fueled by hospitals and universities whose nonprofit or not-for-profit status render them wholly or partially exempt from property and some other taxes.
Murphy has tried unsuccessfully to get the Legislature to approve a new payroll tax, among other levies, so those who work in the city will pay more for its services.
Sought oversight board
State Sens. Jane Orie, R-Allegheny, and Jack Wagner, D-Allegheny, tried to head off the Act 47 designation earlier this month with legislation to create a five-member fiscal oversight board. Gov. Ed Rendell has promised to veto that measure.
Orie said such a board, like one used to oversee Philadelphia's financial crisis in the 1990s, is needed in Pittsburgh because the Act 47 overseer doesn't have enough power for larger cities and the problems they face.
"There's no money that comes with [Act 47]," Orie said. "There's a commuter tax [that can be imposed] and that's it. Philadelphia had capped out on all of their taxes but Pittsburgh has not, nor have they sold off assets and things like that."
Orie said she believes "Act 47 will be a hindrance to Pittsburgh becoming an economic hub."
Objects to commuter tax
Wagner said he's still hopeful that an oversight board and the Act 47 coordinator could work hand-in-hand. And he warned that enacting a commuter tax could backfire.
"I think it creates more animosity between the suburbs and Pittsburgh and also creates the potential for suburban legislators to not vote favorably on other issues that might help the city, such as new revenues," said Wagner, a former city council president. "So I wouldn't look at it as a win-win for the city."
Orie, Wagner and other lawmakers have criticized Murphy for not reining in costs, but he has said Pittsburgh laid off one in five city workers from 1993 to 2002 and 640 in the past few months. He also closed numerous city facilities, from police stations to pools.
Pittsburgh's credit rating hit junk-bond status in October.